The Impact of Structural Changes in Rents on Different People - Research Paper Example

 1.0 Introduction The public housing system has witnessed more radical changes than any other area of British social policy since 1979 in terms of the withdrawal of the state coupled with phenomenal growth. This growth was made possible through the financial support provided by the Housing Corporation, which has tightly controlled the pattern of new development, aiming to ensure economic and efficient management, and that national social policy objectives such as ethnic mix and tenant participation are realised (Wigglesworth and Kendall). Housing sector in the UK consists of Social housing and Private housing. Rents for private housing are determined between the landlord and the lessee on mutually agreed terms while the rents for social housing are determined through policy laid down by Government. Social housing in itself is composed of housing administered by local authorities or Registered Social Landlords (RSLs). Arms Length Management Organisations (ALMOs) are set up by local authorities to manage all or part of their housing stock. There is no direct impact on rents when an ALMO is set up as the power to set rents remains with the local authority. The Department for Communities and Local Government (DCLG) issues rent setting guidance to all local authorities, whether or not they have an ALMO, on the rent restructuring rules. Recent housing policy debates in the UK have shifted away from discussion of housing need to more market-oriented analyses of affordability and quality, both of accommodation as well as the services provided by the operator. Social rent setting is a particular issue in the UK and the government is seeking to address it through the rent restructuring policy that is currently being implemented. In the housing Green Paper published in April 2000 “Quality and Choice – a decent home for all”, the Government set out its plans for reforming rent setting and rent restructuring in the social housing sector. Properties managed by a RSL or an ALMO have generally had similar results in improving the quality of the housing and services they provide. Rochdale Borough-wide Housing Ltd (RBH) is one such organisation, owning and operating social housing in the UK, and this paper discusses the impact of rental policy from their viewpoint. In addition this paper explores the impact that private management of public properties has had on the social housing sector. 2.0 Background The previous Conservative government up to 1997 had a policy of allowing social rents to increase with the intention of reducing public expenditure on subsidies with little regard to the impact on affordability or work incentives for tenants. They argued that rent increases allowed help to be diverted to those in greatest need. Better-off tenants met rent increases out of their own pockets while Housing Benefit 'took the strain' for the poorer tenants. This however, created serious problems of benefit dependency and work disincentives throughout the country. The present Labour Government has already introduced the national minimum wage and Working Families Tax Credit (WFTC) in order to tackle poverty, promote work incentives and reduce benefit dependency. Realignment of rents in line with this thinking has been taken up on priority. The Office of the Deputy Prime Minister (ODPM) now changed to the Department of Communities and Local Government (DCLG) [since May 2006] has issued several guidelines on the calculation and setting of rent for different social housing properties. Since April 2002 rents are calculated according to a formula based on relative property values, local earnings and property size. Restructured rents are calculated using the formula and data set out in the DCLG guide to Social Rent Reforms. Circular R2-27/01: ‘Rent Influencing Regime – Implementing the Rent Restructuring Framework’ also sets out the calculation of target rents. The complex mosaic of rental patterns in the social rented sector begins to make sense once the nature of individual rent schemes is explored. Judged against either landlord objectives or market rent differentials, some rent schemes are more ‘rational’ than others. Some no longer generate ‘fairness’ in rents, having become distorted through the effects of flat rate rent increases, failure to review attribute values, or other policy decisions. The DCLG is committed to keeping social rents at an affordable level, well below private sector rents and has been successful in doing so. The DCLG would like social landlords to set rents for the houses provided by them by taking account the following factors: Affordability for tenants Impact of rents on work incentives Efficiency of below-market rents helping people in greatest need Impact on public expenditure Impact on the finances of social landlords The prolonged process of rent structure revision illustrates that any policy change is likely to be slow and difficult. At the same time, the prospect of Housing Benefit reform, already initiated in the private rental sector, must also be taken into account. Especially in case of RSLs who must be able to maintain their stock and meet their commitments to lenders. Since 2002, RBH have used a points system to set rents. This means that homes of a similar age, value and type and in the same area will eventually have similar rents. These target rents together with convergence are to be completed by March 2012. 3.0 Present Scenario Pathfinder’s projects cover areas most acutely affected by low demand and abandonment in order to return these to sustainable communities. The Pathfinders will restructure the areas’ housing markets to ensure there is more sustainable balance between housing supply and demand and address any other social and economic regeneration issues. Rochdale is one of the areas to be covered under Pathfinders projects. The supply-side stimulus provided by the Corporation’s developmental grants, demand-side, means-tested Housing Benefit funded by the state have put low income tenants in a position to pay rent to Registered Social Landlords (RSLs). The growth of RSLs can be understood partly by reference to the failures or limitations of, and difficulties associated with other rental sectors. Many for-profit landlords originally left the housing market following the development of extensive restrictions and regulations in this field. It is only recently that the for-profit sector has emerged as a directly funded social housing operator; for-profit sector operates as a de facto provider of social because Housing Benefit-funded tenants have chosen this option. Mid 1980s legislation permitting transfers of local authority property to RSLs after tenant ballots has added to the momentum. However, the environment for RSLs changed with the 1988 Housing Act, which initiated a revolution in the system of housing finance. Spurred by a desire to stimulate “efficiency”, the new financial framework requires RSLs to raise funds from their own reserves or private lenders to supplement the public subsidy, for which they must now bid on a competitive basis. According to Hills (1989, p. 264), support for RSLs during the 1980s was forthcoming because they appeared to offer “variety and organisational style which gave them a good reputation for innovation and good management”. The RSL’s now had to raise funds by offering security and charge rents in order to be able to service the debt. The role of Government was gradually rolled back and rents rose to unprecedented levels. The emergence of RSLs as the prime suppliers of social housing has had significant impacts on the social housing sector, some of which can be attributed to the rationalisation of rents recovery, that are enumerated in the following sections. 4.0 Existing Rentals Rents for similar properties offering similar benefits are found to be different. Tenants see that it is unfair when there is no apparent explanation for the pattern of rents in a locality, whether in terms of relative property quality, relative attractiveness of location or relative running costs. The resulting structure of rents is extremely confusing to tenants and landlords alike. It cannot be described as fair and does not support to offer more choice, encourage tenants to take more responsibility for their housing and promote better management by social landlords. Many councils set rents using points or other comparability systems, some still base differentials on Gross Annual Values while still others operate ad hoc schemes following reorganisation in 1996. As compared to this all RSLs use comparability systems most of which were points-based. If we look at the existing local authority housing finance system, the Housing Revenue Account (HRA), sets guideline average rents for each local authority using a method that balances regional earnings and property values. This provides a method of taking account of property values while also having regard to the affordability of rents for tenants. The main features of this option are: it is based directly on a consideration of affordability in each region compared with using property values only, it reduces the rents of the highest value properties it sets a floor to rents which varies only slightly between regions In each region, rents vary by the same amount around £5 per week for each £10,000 of property value. Currently, rents in the RSL are around 20% higher, on average, than rents in local authority housing. This is in line with the difference in property values between the two sectors. In future, rents across the two sectors should be based on the same principles. This would require some convergence under most of the rent-setting alternatives as mentioned earlier. The ODPM has stated that whatever the foundation on which rents are set in the future, they will still continue to provide incentives through the HRA subsidy system to encourage local authority landlords to move their average rents towards the target level. Some authorities like RBH will take as long as ten years to restructure their rents fully. 5.0 Impacts of Rental Resetting 5.1 Rents and Social Benefits Keeping social rents at affordable levels for working tenants has an important role to play in supporting and promoting work as the best route out of poverty. The introduction of WFTC means that, at the current average rent level in the registered social landlord sector, most social tenants with children have to earn only around half the current average gross earnings of full time manual workers to avoid the need to claim Housing Benefit. Any increase in social rents would have a serious impact on the work incentives of tenants, through: Causing more tenants to depend on Housing Benefit since a large share of earnings would go towards meeting the additional rent, which could as well come from Housing Benefits. Research has established that some tenants are deterred from taking work (especially casual or short-term jobs) because of concerns about whether and how quickly and easily they would be able to re-claim Housing Benefit if the job ended. Higher rents would also reduce the incentive for some tenants to return to work. Many tenants may be reluctant to take certain jobs if the take home pay offered is only slightly higher than the amount they would receive in benefits out of work. Even if local authority rents rose by as much as 25%, the increase in annual gross rental income of £1.8 billion would be offset by extra Housing Benefit spending of £1.4 billion. Such calculations do not put a value to the social cost of such action. The opposite also does not help; a reduction in the level of social rents as a way of helping the worst-off would entail a loss of income for the government. The tenants with the lowest incomes would also not be better off because they are already in receipt of Housing Benefit and would see it reduced with the fall in their rent. Instead, the gainers would be tenants who do not need Housing Benefit, including those with incomes above the national average. 5.2 Service The emergence of RSLs and ALMO has improved the services provided to the renters due to uniform and sustainable rent levels and private management. As far as the Housing Corporation, is concerned service provision is the most important rationale for its support for the RSLs it funds. They are seen as being able “to provide accommodation for those who are inadequately housed or homeless, and for whom suitable housing is not available at prices within their means, or elsewhere in the local market” (Housing Corporation, 1991). At the same time, RSLs also undertake other, housing-related activities, such as the provision of nursing care, training schemes and personal care (NHF, 1995). With the transfer of former local government housing stock to RSLs, the portfolio of the sector now also includes an increased proportion of general housing for low income groups, including many more unemployed people, homeless people and in particular families, rather than older people or people with special needs (Wither and Randolf, 1994). Recent research from the Housing Corporation confirms that RSL provision involves less over-crowding and higher bedroom standards than public or private sector social housing (Housing Corporation, 1998) and this is because RSLs are specialists, with better resources and better portfolios. In addition to these advantages Page (1993) points out to the better staff-tenant ratios and lack of direct political control as additional reasons for their better performance. Mumford and Richardson (1999) advocate better rent collection, turnaround and repairs as driving the performance. Malpass and Murie (1992) attribute this to the better quality of the portfolio and better resources. Some research also suggests that the 1988 switch in funding regime and the competition it engendered has put downward pressure on the quality of RSL housing in terms of space standards in new build homes (NHF, 1993; Karn and Sheridan, 1994). Comparisons of the rents paid by tenants have also been attempted. Once again, these studies demonstrate tremendous variation between and within different environments, locales and situations. This variation will be considerably reduced with the implementation of standardised rents, while maintaining higher levels of service. Differences in rent levels may also reflect different degrees of inclusiveness in terms of what services the rent payment actually secures. With these caveats in mind, it can nevertheless be concluded that RSL rents tend to be set, on average, at higher levels than local authority but at lower levels than private sector equivalent property (Wilcox and Rhodes, 1998; DTZ Consulting, 1998). 5.3 Advisory Role Many RSLs provide management, training or advisory services for other housing groups in addition to operating their own accommodation. This voluntary service includes housing advocacy through the operation of local specialist housing advice agencies. Highest profile of all is the national homeless charity, Shelter, which now helps more than 150,000 people a year. Its 54 housing aid centres exemplify many of the advice-giving activities also undertaken by more local organisations and some RSLs, including helping people avoid losing their homes to begin with; finding places to sleep at night; informing people of their legal rights; representing people in court or presenting their case to lenders or public authorities; and assisting in drafting letters to landlords and bank managers. In a broader sense RSLs “read” and “shape” policy in the field (Mullins and Riseborough, 2000). However, more tangibly, the sector had been successful in securing funding for, and implementing discrete central government programmes such as the Rough Sleepers Initiative. 5.4 Innovation Innovation can be thought of as the purposive introduction of changes in “production”, involving a sharp discontinuity with existing practices. In the context of voluntary sector bodies, “productive” activity should be interpreted broadly to include not just service delivery, but other functions also (Kendall and Knapp, 2000). Two of these are the use of alarm systems, tele-working, close circuit TV and call centres; and improvements in infrastructure quality made possible by using sustainable products. Two others are tenant participation and area regeneration. The two innovations which seemed to be particularly associated with RSLs were organisational responses to the new RSL financial regime and extensive and creative patterns of diversification. In particular, the Housing Corporation and the NHF played an important role in developing new schemes and procedures to provide a route whereby RSLs could secure the requisite private finance. One important example of collaboration between these two agencies was the founding and functioning of the Housing Finance Corporation, which has raised some £1 billion of the £12 billion private funds secured since the Act. Housing scholars Chris Mullins and Moyra Riseborough have described in detail how RSLs have diversified within and outside of their core housing services (Mullins and Riseborough, 1997). Some of their innovations within housing could be labelled market differentiation, including the provision of housing to new groups of users, such as people with learning difficulties or low income first time buyers, others involve organisational innovation such as the growth of inter-sector partnerships involving RSLs with statutory health (NHS) and social care agencies. RSLs’ widespread diversification into social and community care services would be an example of radical product innovation beyond their traditional housing brief as would be their involvement in a range of new training schemes, foyer schemes, and crime prevention initiatives. It should be noted that since 1996 the Housing Corporation has explicitly sought to encourage “novel approaches and replicable good practice” (Evans, 1998a). However, the wider regulatory activities of the Corporation and charity law jointly served to limit RSLs’ ability to innovate (Housing Today, 1999). 5.5 Leadership The development of ethnic minority led and managed RSLs. These make a valuable contribution in identifying and meeting the needs of some people from these communities, and in so doing have influenced housing practice (Harrison et al., 1996). These developments have been particularly important because ethnic minority turnout in local elections has been much lower than for the white community (Cheetham, 1988). The changing nature of the RSL financial environment has increased the perceived importance of business acumen, leading to the recruitment of more volunteer board members positioned to advise on funding and accounting matters. 5.6 Community Building The government has seen RSLs as catalysts in the process of combating social exclusion. Community building implies activity with durable and long term consequences – that is, to make communities “sustainable” (Smith and Paterson, 1999). This reflects on activities which involve RSL investment – either in physical, human or social capital. All of these resonate with the Housing Corporation’s Housing Plus agenda, “emphasising ways in which housing investment can reduce social exclusion, improve environmental sustainability and meet tenants’ growing social needs” (Evans, 1998b, p. v). These aspirations build on what are seen as productive existing approaches already pioneered by RSLs at the local level. Moreover, the diversification out of housing has often involved RSLs in building physical infrastructure, typically involving work pursued jointly with partners from other sectors as part of co-ordinated urban regeneration efforts. Many RSLs have used their resources to improve the environments of rundown neighbourhoods by contributing financially also. Other factors that have contributed to community building have been the designing of estate layouts and densities to promote community safety, especially involving the “incorporation of defensible space” (Evans, 1998b p. 56), ensuring a balanced social mix on estates which matches that of surrounding areas, minimising disruption to social networks by sensitive allocation procedures, the provision of lifetime homes and a range of accommodation in locations well served by public transport and maximising local income retention through energy efficiency, welfare advice, exploring scope for cheap finance and bulk discount schemes. 5.7 Specialisation This strength may be interpreted as weakness too. When looked at as a weakness one may say that RSLs are specialised in providing only for particular categories. Since RSLs provide for particular categories of tenants only this may lead to a mismatch between RSL-led supply and local authorities’ housing priorities. Many local available places only for people strictly of a particular age, gender or ethnicity could be frustrating for local government housing officials. 5.8 Paternalism RSLs are frequently blamed for doing nothing to find out what tenants want but they tell the tenants what’s good for them. This kind of attitude can also be found in most local authority housing. However, the problem had increasingly been recognised and is being addressed: the growth of tenant participation models, such as those mentioned above in the context of community building, often proactively supported by RSLs, are seen as a part of a wider movement away from paternalistic attitudes. In addition, Tenant Participation Advisory Service (TPAS) is operating nationally to support this development. Moreover, a lobbying organisation for RSL tenants (HARTOE) is operating to keep tenants’ rights and welfare on the national agenda, alongside interests as promoted by the NHF. 5.9 Chronic Resource Problems Large reductions in Housing Corporation supply-side support for RSLs have inevitably led to concerns. Furthermore, central government moves to limit support to tenants on the demand-side through tighter control of the mushrooming Housing Benefit bill has also put pressure on RSLs (Smith and Paterson, 1999). However, many RSLs have managed to build up quite significant levels of reserves – despite the competitive and environmental pressures which provide them with a cushion for the future. RSL sector is also at a comparative advantage in being able to pull together a wider range of public funds because some financial opportunities are not available to for-profit operators. 6.0 Conclusions This review of the impact of structural changes in rents on different people provides a meaningful basis on which to bring into focus the “functions” performed by social housing in the UK, and to examine the extent to which “weaknesses” are also to be found there. RSLs are rapidly displacing municipal housing as the primary route for meeting the housing needs of the vulnerable and socially excluded. This is a step in the right direction and sustainable communities shall only come about with the rationalisation of rents that meet the customers’ expectations, the Governments vision and allows for the economic sustenance of the RSLs. . Achieving equity (though not necessarily equality) in rents would not be achieved through rent scheme reform alone but would also require adjustment to landlords’ average rent levels. A more detailed study of market rent differentials could be a useful input to policy development. References Cheetham, J. (1988). Ethnic associations in Britain. In S. Jenkins (ed.), Ethnic Associations and the Welfare State: Services to Immigrants in Five Countries, Columbia University Press, New York. DCLG Home page, accesses on August 10, 2006 from their website http://www.communities.gov.uk/index.asp?id=1139866 DTZ Consulting (1998) Rents in Local Authority and Registered Social Landlord Sectors, Report to the Local Government Association and National Housing Federation, London. Evans, R. (1998a). Innovation and Good Practice; Grants Available from the Housing Corporation, Source Advice 3, Housing Corporation, London Evans, R. (1998b). Housing Plus and Urban regeneration: What works, How, Why and Where? Institute for Urban Affairs in Association with the Housing Corporation, London Harrison, M. (1998). Minority Ethnic Housing Associations and Local Housing Strategies: An Uncertain Future? Local Government Studies, 24(1), 74-89. Hills, J.(1989) The voluntary sector in housing: the role of British housing associations. In E. James (ed), The Non-Profit Sector in International Perspective, Oxford University Press, New York. Housing Corporation (1997). The Future of Independent Landlords, Housing Corporation, London. Housing Today (1999). Associations told not to go too far with new freedom, 18 February Karn, V., and Sheridan, L. (1994). Standards in Housing Association Homes, University of Manchester, Manchester Kendall, J., and Knapp, M. (2000). Measuring the Performance of Voluntary Activity, Public Management, 2(1), 105-132 London Research Centre (1996). Quoted in Housing Today, 12 March. Malpass, P., and Murie, A. (1994). Housing Policy and Practice, Macmillan, Basingstoke. Meikle, J. (1997). Rents Asunder, The Guardian, 17 September. Mullins, D., and Riseborough, M. (1997). Changing with the Times: Critical interpretations of the repositioning of Housing Associations, School of Public Policy, Occasional Paper 12, Centre for Urban and Regional Studies, University of Birmingham. Mullins, D., and Riseborough, M. (2000) Non-profit housing agencies: ‘reading’ and shaping the policy agenda. In M. Harris and C. Rochester (eds.), Voluntary Organisations and Social Policy, Macmillan, Basingstoke Mumford, K., and Richardson, E. (1999). Personal communication, LSE Housing, London Page, D. (1993) Building for Communities: A study of New Housing Association Estates Joseph Rowntree Foundation, York. Quality & Choice – a decent home for all; April 2000 accessed on August 9, 2005 from http://www.odpm.co.uk Riseborough, M. (1995). Housing associations: voluntary, charity or non-profit bodies? 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